Inflation is festering and accelerating in services (two-thirds of overall PPI), not in goods.
By Wolf Richter for WOLF STREET.
As has been the case for many months, today’s Producer Price Index for January included big up-revisions of the prior month, driven by a whopper up-revision for services which account for two-thirds of the overall PPI. On top of these upwardly revised December figures, the PPI rose further in January.
In January, the overall PPI accelerated to an increase of 3.51% year-over-year, the worst increase since February 2023, following a persistent zigzag line higher from the low point of near 0% in June 2023, driven largely by the services PPI.
And December was revised up to an increase of 3.48%, from 3.31% as reported a month ago. This up-revision was powered by a massive up-revision in services.
The PPI tracks inflation in goods and services that companies buy and whose higher costs they ultimately try to pass on to their customers.
On a month-to-month basis, the PPI for final demand jumped by 0.40% (4.9% annualized) in January from December, seasonally adjusted.
And December’s increase was revised up to +0.50% (+6.2% annualized) from the previously reported +0.22% (+2.7% annualized). The up-revision more than doubled the increase! This was driven by the whopper up-revision of the Services PPI.
The up-revision for December plus January’s increase caused the 6-month PPI to surge to +4.0% annualized, the worst increase since October 2022 (red).
The plunge in energy prices from mid-2022 through September 2024 had cooled the overall PPI increases into the pre-pandemic range, and papered over the inflationary forces in services. But since October, energy prices stopped dropping and flipped to increases. In January, energy prices jumped by 1.7% from December, which wiped out the remainder of the year-over-year drop, and the index was unchanged year-over-year.
Food prices jumped by 1.1% in January from December and by 5.5% year-over-year. The avian flu’s impact on egg production had some impact here.
Without food, energy, and eggs: “Core” PPI, which excludes food and energy, was revised up massively for December.
The month-to-month increase for December had originally been reported as +0.04% (0.5% annualized). Today it was revised up by 36 basis points to an increase of +0.40% (4.9% annualized). All seasonally adjusted.
On top of the up-revised December rates came January’s increase of 0.28% (3.4% annualized), which accelerated the 6-month PPI to 3.8% annualized, the worst since September.
Year-over-year, core PPI for December was revised up by 20 basis points, from the previously reported +3.55% to today’s December figure of +3.75%.
Year-over-year data are not seasonally adjusted since they cover 12 months and wash out any seasonal effects. Not seasonally adjusted, the January core PPI jumped by 0.49% (not annualized). But the January 2023 increase of +0.63% fell out of the 12-month window. So year-over-year in January 2025, the index rose by 3.61%, a notch slower than the upwardly revised increase of 3.75% in December (originally reported at 3.55%).
The services PPI, which accounts for two-thirds of the overall PPI but excludes energy services, had the whopper 47-basis-point up-revision for December, from the originally reported month-to-month increase of 0.04% (not annualized), so from nearly no change, to +0.51% as revised today.
On top of this upwardly revised 0.51% surge in December (+6.2% annualized), the services PPI rose another 0.32% in January (3.9% annualized).
This pushed the six-month services PPI to +4.5% annualized, the worst since September.
The year-over-year December increase was revised up by 25 basis points, to +4.28%, from the previously reported +4.03%.
With the January 2023 reading of +0.71% (not seasonally adjusted) dropping out of the 12-month window, and the January 2025 reading of +0.54% (not seasonally adjusted) moving into the 12-month window, the year-over-year increase in January cooled a hair to +4.14% from December’s up-revised 4.28% (originally reported as 4.03%).
These up-revisions have the effect that the entire zigzag line keeps shifting higher:
The “core goods” PPI was only minimally revised up. In January, it rose by 0.13% (+.5% annualized) from December.
Year-over-year, it rose by 2.0%, in the same 2%-plus range of increases for the seventh month in a row. The goods sector is not where inflation is a big issue at the moment. The issue with inflation is in services.
The PPI for “core goods” covers goods that companies buy but excludes food and energy products.
With these underlying trends, as shown by the PPI, it’s no surprise that consumer price inflation, as tracked by CPI, continues to accelerate, and that there too, inflation is festering in services, and in January it was non-housing services where inflation accelerated sharply.
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And yet, “rally on Garth”.
Interesting all the attention on eggs, shortages, etc. But no movement on actual chicken prices (at least none I’ve noticed).
Yes… Beef and pork prices have risen sharply, poultry prices are unchanged month-to-month and year-over-year – per CPI, see my article yesterday:
https://wolfstreet.com/2025/02/12/beneath-the-skin-of-cpi-inflation-worst-month-to-month-acceleration-of-cpi-since-aug-2023-on-spikes-in-used-vehicles-non-housing-services-food-energy/#comment-626136
Maybe everyone is becoming a chicken farmer, increasing supply, to reap the rewards of the golden eggs!
Yet the markets react favorably.
Let’s hope it hits new All Time High so the Fed can cut rates again at absolute peak instanity. And they will.
Facts are only weakly correlated with vibes.
It will take a lot more bad news to get it the way of a tech bubble. The Tesla shorts got the stuffing kicked out of them for betting against a company with a bigger market cap than the auto industry. Meta is still called Meta. And so on.
Yet the USA tech exceptionalism trade grinds on, even though the cheerleaders are looking a bit long in the tooth.
Call me a skeptic but I don’t see the layoffs being AI related. Instead, it may be more like the beginning of something else.
Well we do live in the stupid and ridiculous version of the many multiverse theory so this is par for course.
Next move, lower short term and hope long term rate will magically come down too. Better yet since we are re-writing or pulling rabbits out of the hat when it comes to rules, maybe we can have an executive order to have Fed set the 10yr yield moving forward or EO to not measure PPI.. That’ll show inflation who’s the boss
Phoenix Ikki, You live in a dream world if you think lowering short term rates will lower long term rates. As much discussed in Wolf Street, the Fed lowered short term rates 100 bp, and long term rates then went up 100 bp. Long term bonds worry about inflation and apparently have little confidence in the Fed being able to deal with inflation. Recent data suggest the long term bond guys are right. The really interesting question is if the Fed raises short term rates, i.e., is really serious about attacking inflation, will long term rates drop.
You really need to read my post before chiming in. This is not what I think will happen, I actually read Wolf’s article, my point is about magical thinking by people currently in charge.
For some reason, you like to direct your not so welcome comment at me like in the RTO article. This is the only time I’ll bite but you are more than welcome to reply to my comment
Phoenix Ikki, If you are being sarcastic, you have to indicate so, maybe with a “/sarc” tag. Otherwise how are we to know? People write the most ridiculous things and really believe what they write.
I believe he was being facetious and questioning the logic of those in power (or lack thereof).
Why wouldn’t they?
The last 15 years has shown that the gov’t will always step in and bail people out. So be as irresponsible as you want because you can’t lose.
This bad behavior and speculation will continues until something bad happens and the gov’t lets the private sector really suffer the consequences.
Markets do what they do because they do it, that’s my ground rule.
Markets do what they do because the FED intervenes at the very slightest hint of a dent to valuations. They have told and shown the world that they will never allow stocks to correct. They will print money and destroy the currency to support them. That’s my ground rule.
i don’t know if this is true or not, but i do know that the silicon valley bank btfp program is what set the current mania in motion.
the fed hasn’t really been tested now in two years. we won’t know until a correction starts and they either start printing or hold off and do nothing
Agree 100%. If the Fed does an emergency rate hike tomorrow, market will crash on an epic proportion. Powell’s job is to never surprise the market.
Stock Market Roulette: “Place your bets everybody. Round and round she goes, where she stops nobody knows. Good luck, everybody.” But unlike a legitimate roulette wheel, the guys with really big money know where she stops, because they can make her stop any time, anywhere.
i’ve come to believe that there will never be a reasonable entry point for the purchase of assets again, at least not until the west’s financial system completely collapses, and something new takes its place.
the buy assets at all costs mantra is too ingrained for anyone, including the fed, to break it.
So the theory is just to give this more time. In other words – it’s transitory.
Obviously what is being done is not working. History repeating.
Like somebody said before: “This 4% inflation is not acceptable. There’s just no way we’d allow the 5% inflation to become entrenched, because this 6% inflation is not something we will tolerate for any length of time. The 7% inflation could really make things difficult due to this 8% inflation. We definitely don’t want to wait around long at 9% inflation, because this 10% inflation is becoming quite a bear. The 11% inflation is starting to eat away at people’s budgets, so we must arrest this 12% inflation soon, so that this 13% inflation doesn’t take off.”
Penny is too expensive to mint anymore. Can’t we ask China to do it for half a penny? Then we can tariff it at 100%. Win win.
This makes a lot of cents
It would make very little cents, literally.
It is not surprising that PPI continues to push higher. Especially as regards services: To my knowledge, those with the last access to capital get their wage raises late in the economic cycle. The services portion of the economy is catching up to the massive price increases that have decimated wage earners and service providers buying power. Meanwhile corporate profits and margins remain high enough to support record highs in the financial markets.
andy,
Countries exporting to us do not pay the tariffs. It is the importer that pays the tariff. How is it that anyone does not understand this?
What do you call a 25% hit to their GDP?
Frosty,
It’s ok because we will pay it to ourselves.
I should have been a central banker.
Market action and bonds are indicting that these inflation reads are a blip and not a problem.